Standard And Poorshttp://www.businessinsider.com/category/standard-and-poors
en-usTue, 03 Mar 2015 18:58:19 -0500Tue, 03 Mar 2015 18:58:19 -0500The latest news on Standard And Poors from Business Insiderhttp://static3.businessinsider.com/assets/images/bilogo-250x36-wide-rev.pngBusiness Insiderhttp://www.businessinsider.com
http://www.businessinsider.com/r-sp-to-pay-77-million-to-settle-sec-state-charges-over-ratings-2015-1The SEC Just Handed A Credit Rating Agency A Multimillion Dollar Fine For The First Timehttp://www.businessinsider.com/r-sp-to-pay-77-million-to-settle-sec-state-charges-over-ratings-2015-1
Thu, 22 Jan 2015 10:08:00 -0500Sarah N. Lynch and Karen Freifeld
<p><img style="float:right;" src="http://static2.businessinsider.com/image/53d04b4fecad04a41e63f4c7-1200-924/standard-poors-sp.jpg" border="0" alt="standard poors S&amp;P"></p><p></p>
<p>Standard &amp; Poor's will pay $77 million and be barred for one year from rating commercial mortgage-backed securities, in an unprecedented settlement with U.S. and state regulators who accused the U.S. credit rating agency of misleading investors.</p>
<p>This is the first time the U.S. Securities and Exchange Commission has levied civil charges against one of the Big Three credit-raters since it won authority from Congress in 2006 to police the sector. An SEC official said he expected more enforcement actions.</p>
<p><a href="http://bit.ly/1stXJJz" class="vglnk" rel="nofollow"><span>S</span><span>&amp;</span><span>P</span></a> neither admitted nor denied wrongdoing in the settlement announced on Wednesday. The deal affects securities issued by so-called conduit lenders, who originate commercial mortgages to package into securities for sale to investors.</p>
<p>"The settlements do not affect any outstanding S&amp;P Ratings credit ratings or the manner in which S&amp;P Ratings conducts credit analysis under the relevant criteria," the company said in a statement.</p>
<p>Research analysts downplayed the impact of the time-out period on S&amp;P and its bottom line.</p>
<p>"While the one-year suspension is a black eye for S&amp;P, it will likely have minimal financial impact given S&amp;P's low share in this niche segment," a Piper Jaffray report said.</p>
<p>The commercial mortgage-backed securities (CMBS) market accounts for just 1 percent of S&amp;P's overall revenue, Piper Jaffray noted. S&amp;P's total 2013 revenue was about $4.9 billion, according to its annual report.</p>
<p>Even bigger potential settlements are on the horizon for S&amp;P, said two sources who asked to be anonymous because the deals have not been finalized.</p>
<p>The McGraw Hill Financial Inc unit is close to an agreement to pay $1.375 billion to settle government lawsuits over mortgage ratings issued in the runup to the 2008 financial crisis, one of the sources familiar with the matter said. The other source said S&amp;P was in talks to pay as much as $1.5 billion to settle the lawsuits.</p>
<p>The U.S. Justice Department sued the firm in February 2013, claiming more than $5 billion in losses from S&amp;P-rated securities during the 2007-2009 financial crisis.</p>
<h3>Black Eye</h3>
<p>Under Wednesday's deal, S&amp;P agreed to pay $58 million to settle three matters with the SEC, and $19 million to settle parallel cases with the attorneys general of New York and Massachusetts.</p>
<p>Unlike the Justice Department case, the charges brought by the SEC involve post-crisis actions starting in 2011.</p>
<p>New York Attorney General Eric Schneiderman said in a statement that S&amp;P's 2011 conduct amounted to "lying to investors" so it could bolster profit.</p>
<p>The investigation found that S&amp;P misled investors by secretly using more aggressive assumptions in its calculations than it publicly disclosed. The less conservative assumptions made them more attractive to issuers, officials said.</p>
<p>"These cases are a reminder that race-to-the-bottom behavior - that is, loosening of ratings standards in pursuit of market share - persists even though the crisis has ended," Andrew Ceresney, the SEC's enforcement director, told reporters on a conference call.</p>
<p>Most of the allegations against S&amp;P center around problems that arose in 2011 over its ratings of certain CMBS.</p>
<p>S&amp;P's CMBS business suffered a blow that year, after a major error forced it to withdraw a rating on a $1.5 billion deal.</p>
<p>The SEC and state attorneys general said the company publicly misrepresented the methodology used to rate six different CMBS products in 2011.</p>
<p>To regain the market share it lost over its errors, the company "published a false and misleading article" claiming its new credit levels could withstand "Great Depression-era" stress levels, the SEC said.</p>
<p>The SEC determined that S&amp;P was not equipped to participate in rating CMBS because of inadequate internal controls.</p>
<p>S&amp;P and its main U.S. rivals, <a href="http://bit.ly/1svVCKI" class="vglnk" rel="nofollow"><span>Moody</span><span>'</span><span>s</span></a> Investors Service and Fitch Ratings, account for about 96 percent of all credit ratings, according to a 2012 SEC report.</p>
<p>Asked on a call with reporters whether the SEC was investigating other credit rating agencies for similar violations, Ceresney said the commission is very focused on the issue.</p>
<p>"This is an area in which I imagine there will be future activity," he said, declining to comment on particular cases.</p>
<p>In addition to charging the company on Wednesday, the SEC brought related civil charges against former S&amp;P executive Barbara Duka.</p>
<p>Duka is planning to contest the charges in an SEC administrative court. Her attorney, Guy Petrillo, said in a statement that his client "did not act wrongfully" and performed her duties with the "utmost good faith."</p><p><a href="http://www.businessinsider.com/r-sp-to-pay-77-million-to-settle-sec-state-charges-over-ratings-2015-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/credit-agencies-junk-tesco-2015-1Tesco Is Junkhttp://www.businessinsider.com/credit-agencies-junk-tesco-2015-1
Wed, 14 Jan 2015 08:39:00 -0500Mike Bird
<p><img style="float:right;" src="http://static3.businessinsider.com/image/54b671badd0895382c8b4624-1200-924/2462210514ea1e27e829o.jpg" border="0" alt="2462210514_ea1e27e829_o"></p><p>Credit rating agencies are lining up to junk Tesco after an abysmal year.</p>
<p>The UK supermarket competes with France's Carrefour for the title of world's second-largest retailer.</p>
<p>Moody's downgraded Tesco's credit rating to junk last week. Standard &amp; Poor's follows today, with this pretty brutal assessment of the British retailer's prospects:&nbsp;</p>
<p style="padding-left: 30px;">Given the structural changes and competitive pressures that Tesco is facing in the U.K. market, the credit supportive financial policy measures announced by Tesco's management are unlikely to sufficiently improve the group's financial risk profile to maintain an investment-grade rating.</p>
<p>Those "competitive pressures" come in the form of two German insurgents: Aldi and Lidl, the discounters that are making major inroads into the UK retail market.&nbsp;</p>
<p>In 2014, the firms <a href="http://uk.businessinsider.com/kantar-christmas-2015-supermarket-share-data-2015-1">raised their Christmas sales by 22% and 15%, respectively</a>, at a time when every established British supermarket took a hit.&nbsp;</p>
<p>Meanwhile,&nbsp;<a href="http://uk.businessinsider.com/tesco-is-slashing-costs-and-dumping-dozens-of-stores-to-dig-itself-out-of-its-massive-financial-hole-2015-1">Tesco efforts to cut costs in 2015</a> (it scrapped its dividend for shareholders, announced a freeze on payroll investment, is closing dozens of unprofitable stores, and is stalling its expansion plans)&nbsp;is still not enough for S&amp;P:</p>
<p style="padding-left: 30px;">In our view, the dividend cancellation, cuts to future capital expenditure, and potential disposal of the dunnhumby business, if achieved, should enable Tesco to improve its cash position by more than £3 billion over the next financial year ending 2016. At the same time, however, we expect market conditions to remain highly competitive for retailers, particularly in the U.K., which accounts for about two-thirds of Tesco's retail sales and profits. We anticipate that increased competitive and price pressures in the U.K. from both traditional and discount retailers could suppress any benefits from various management strategies oriented toward improving trading performance.<span style="font-size: 15px; line-height: 1.5em;">&nbsp;</span></p>
<p>Tesco was forced into the embarrassing position last year of <a href="http://uk.businessinsider.com/jpmorgan-releases-damaging-note-on-tesco-2014-12">restating its profits, admitting a £250 million overestimation</a>. The company was already finding it difficult to hold its share of the retail market, and combined with the announcement, which included the suspension of several senior executives, its shares fell by about half in value in 2014.&nbsp;</p>
<p><img src="http://static3.businessinsider.com/image/54b671badd0895382c8b4623-1104-496/screen shot 2015-01-14 at 1.10.18 pm.png" border="0" alt="Screen Shot 2015 01 14 at 1.10.18 PM"></p>
<p>That said, investors seem to have responded more positively to Tesco's turnaround plan than credit rating agencies, and the share price has risen by nearly a fifth since it announced the major cutbacks earlier this month.</p>
<p>It's up by about 2% today. That still leaves it far, far below where it was even in the middle of last year. &nbsp;</p><p><a href="http://www.businessinsider.com/credit-agencies-junk-tesco-2015-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/r-after-2014s-party-investors-in-us-stock-market-may-face-a-hangover-2014-12Investors Might Be In For A Nasty Hangover After 2014's Partyhttp://www.businessinsider.com/r-after-2014s-party-investors-in-us-stock-market-may-face-a-hangover-2014-12
Wed, 31 Dec 2014 02:23:00 -0500David Gaffen and Rodrigo Campos
<p><img style="float:right;" src="http://static5.businessinsider.com/image/54a3921d5afbd33c138b4567-450-300/after-2014s-party-investors-in-us-stock-market-may-face-a-hangover.jpg" border="0" alt="A trader works on the floor of the New York Stock Exchange in New York December 30, 2014. REUTERS/Carlo Allegri "></p><p></p>
<p>(Reuters) - Revelers ringing in of the new year this week need to watch out for the next day's hangover. And investors may experience a similar feeling early in 2015 after a two-year run that has propelled U.S. stocks up by nearly 50 percent.</p>
<p>Headed into the last trading day of 2014, the S&amp;P 500 has gained nearly 13 percent on the year, shaking off concerns about valuations thanks to improved economic growth and a very accommodative U.S. Federal Reserve. Add in dividends and the advance is 15 percent.</p>
<p>However, the S&amp;P 500's forward price-to-earnings multiple - based on 2015 earnings expectations - is at about 17 now, exceeding the 15-year average of about 15.</p>
<p>It means that a pick-up in profits growth may be essential if the market is to continue to add to its historic gains. And yet Wall Street analysts’ estimates for S&amp;P 500 earnings growth for coming quarters are languishing in the mid-single digits.</p>
<p>With the Fed ready to begin raising interest rates for the first time in a decade, and the strong dollar providing a headwind for companies with overseas operations, a lot will depend on whether the recent strong growth in domestic demand can drive corporate profits higher than those estimates. Whether consumers and companies benefit enough from lower oil prices to more than offset the effects of the slide on the energy sector is also critical.</p>
<p>"Multiples almost always go down when the Fed raises rates - you’re going to have to depend on earnings," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis, which has $345 billion in assets under management.</p>
<p>The S&amp;P 500's forward price-to-earnings ratio sat at about 13 times at the beginning of 2013; it is now closer to 17, according to Thomson Reuters data.</p>
<p>Since 1940, such a level is associated with S&amp;P returns (excluding dividends) of about 5 percent over a 12-month period, according to data from Citigroup.</p>
<p>The high valuation concerns are starting to have some impact on trading. Stocks have been noticeably more volatile in the last few months; the CBOE Volatility Index, or VIX, has averaged 15.4 over the past 12 weeks, compared with 12.6 at the end of August.</p>
<h3>SHARE BUYBACKS</h3>
<p>If the Fed tightens, the higher rates will not only raise financing costs generally but would also be a deterrent to borrowing to do the share buybacks that have helped to propel earnings per share growth and stock prices gains in the past few years.</p>
<p>With such artificial support crumbling, corporate America will have to rely much more on demand from domestic customers to drive earnings growth. Europe is expected to grow at just above 1 percent in 2015, according to Reuters data, Russia has been slammed by oil's decline, and China and other major emerging markets are struggling with weak demand as well.</p>
<p>Switching to more of a reliance on sales growth rather than the Fed's cheap money may not be an easy transition. Fourth-quarter estimates have plunged in recent weeks, largely in the energy sector as crude oil prices have cratered. Annual growth is now expected to come in at 4.3 percent for the S&amp;P 500 in the fourth quarter, down from a forecast of 11.1 percent growth on only October 1.</p>
<p>Citigroup's chief equity strategist Tobias Levkovich, in a note on Tuesday, said estimate cuts in the next few weeks, when companies typically warn if they expect to report disappointing results, could lead to some reversals and volatility, as "some of the late 2014 S&amp;P 500 gains appear to have been borrowed from 2015’s returns," he wrote.</p>
<p>In perhaps a sign of things to come in the energy sector, Civeo Corp , which builds temporary housing for oilfield workers, said revenue could fall by one-third due to falling crude prices, and cut its workforce and suspended its dividend. The company's shares lost almost 53 percent Tuesday.</p>
<p>Earnings expectations for S&amp;P 500 companies for the first half of next year aren't that encouraging: First- and second-quarter earnings growth estimates currently stand at 5.3 percent and 5.9 percent, respectively.</p>
<p>"If you don’t feel that you have the earnings wind at your back, and you don’t have the monetary policy wind at your back, why pay more than the prices people have paid in many cases since 2000 for stocks?" said Mike O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut.</p>
<p>That said, earnings expectations coming into 2014 turned out to be far too pessimistic: On Dec. 31, 2013, the forecast was for per-share earnings of $120.89 on the S&amp;P 500. With fourth-quarter earnings season approaching, actual and expected earnings were $126.50 per share, according to Reuters data.</p>
<p>So far in the fourth quarter, expectations have fallen largely due to the energy industry's woes, but sectors that could benefit from lower fuel costs, particularly the consumer discretionary sector – which includes many retailers - have not seen an attendant pickup in expectations. That sector is currently forecast to grow 8 percent for the quarter, down from 13.9 percent estimated on October 1.</p>
<p>Despite the caution, few are calling for a bear market given the U.S. economy’s acceleration. An early December Reuters poll of Wall Street strategists forecast the S&amp;P 500 hitting 2200 at the end of 2015. After December's big gains, that suggests just a small rally amid a year of short-term advances and retreats. That said, it's not as if 2014 didn't have its rough spots, either, and yet the year is ending with a flourish.</p>
<p>"In the spring of 2014 the market went nowhere for three months. In the summer through the fall the market went nowhere, and the market at its bottom in October was unchanged for the year," said Dan Greenhaus, chief strategist at BTIG LLC in New York.</p>
<p>"The question is whether the general environment is supportive of higher stock prices, and the answer is still yes."</p>
<p>(Reporting By David Gaffen and Rodrigo Campos; Editing by Martin Howell)</p><p><a href="http://www.businessinsider.com/r-after-2014s-party-investors-in-us-stock-market-may-face-a-hangover-2014-12#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/r-sp-may-downgrade-tesco-to-junk-2014-12S&P Might Downgrade Tesco's Credit Rating To Junkhttp://www.businessinsider.com/r-sp-may-downgrade-tesco-to-junk-2014-12
Thu, 11 Dec 2014 04:03:35 -0500
<p><img style="float:right;" src="http://static4.businessinsider.com/image/548959b95afbd31e668b4569-450-300/sp-may-downgrade-tesco-to-junk.jpg" border="0" alt="A woman walks past a Tesco supermarket in central London, December 9, 2014. REUTERS/Toby Melville "></p><p>LONDON (Reuters) - Ratings agency Standard &amp; Poor's said it may downgrade Tesco's credit rating after its latest profit warning, moving the British grocer closer to losing its investment grade status.</p>
<p>S&amp;P said it believed Tesco's profitability would continue to weaken as competition within the British retail sector remained intense. Any positive changes introduced by the new management could be wiped out by the highly competitive environment.</p>
<p>Tesco cut its profit forecast for the fourth time in five months on Tuesday after failing to adapt to changes in the market, such as the increased popularity of discount stores Aldi and Lidl and a boom in convenience stores and online shopping that has hit Tesco's huge out-of-town sites.</p>
<p>It has also admitted overstating profits by 263 million pounds ($413 million).</p>
<p>"We anticipate that Tesco's profitability will continue to weaken as market competition in the U.K. remains high, possibly even intensifying over the next 12 months, perpetuating the burden on the group's business risk profile," S&amp;P said.</p>
<p>As a result, the ratings agency has put Tesco's BBB- long-term corporate credit rating, which is one notch above junk status, on creditwatch with negative implications.</p>
<p>Ratings agency Moody's has also moved Tesco to one notch above junk and put it on review for a further downgrade after recent results showed its pension deficit and net debt growing while trading profits slumped.</p>
<p>Fitch also has Tesco on a negative outlook.</p>
<p>(Reporting by Kate Holton; editing by David Clarke)</p><p><a href="http://www.businessinsider.com/r-sp-may-downgrade-tesco-to-junk-2014-12#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/r-standard--poors-may-face-sec-charges-over-ratings-2014-23S&P: The SEC Might Come After Us With Civil Chargeshttp://www.businessinsider.com/r-standard--poors-may-face-sec-charges-over-ratings-2014-23
Wed, 23 Jul 2014 19:57:00 -0400Jonathan Stempel and Sarah N. Lynch
<p><img style="float:right;" src="http://static2.businessinsider.com/image/53d04b4fecad04a41e63f4c7-1200-924/standard-poors-sp.jpg" border="0" alt="standard poors S&amp;P" /></p><p>(Reuters) - The parent of Standard &amp; Poor's, which is defending against a $5 billion lawsuit by the federal government over its credit ratings, said on Wednesday it may soon also face U.S. Securities and Exchange Commission charges over another set of ratings.</p>
<p>In a regulatory filing, McGraw-Hill Financial Inc said it received a "Wells notice" on July 22 indicating the SEC is weighing filing civil charges for alleged securities law violations over S&amp;P's ratings of six commercial mortgage-backed securities transactions issued in 2011.</p>
<p>A Wells notice indicates the agency believes civil charges may be warranted, and gives a recipient a last chance to mount a defense.</p>
<p>S&amp;P said it has been cooperating with the agency, and will continue to do so.</p>
<p>Catherine Mathis, an S&amp;P spokeswoman, said it has been reported the SEC was examining its decision in 2011 to "pull" ratings of a CMBS transaction.</p>
<p>She added that the $5 billion lawsuit, brought last year by the U.S. Department of Justice, does not include CMBS securities.</p>
<p>S&amp;P suffered a huge blow to its commercial mortgage-backed securities business in 2011, after a major error on a $1.5 billion deal caused its market share to shrink.</p>
<p>In July of that year, the rater discovered a mistake in its methodology, forcing it to withdraw ratings from a significant CMBS bond offer by Goldman Sachs Group Inc and Citigroup Inc.</p>
<p>In November 2012, SEC examiners homed in on one of the three largest U.S. credit rating agencies, saying the firm changed a key financial ratio for asset-backed securities without telling the public, and failed to consistently apply its rating methodology.</p>
<p>&nbsp;&nbsp;&nbsp; The rating agency, which was not identified, "may have been influenced by market share and business considerations in its application of the methodology used to rate asset-backed securities," the SEC wrote in a report summarizing its recent examinations of the agencies.</p>
<p>S&amp;P was accused in the Justice Department lawsuit of helping fuel the financial crisis, and causing losses for federally insured banks and credit unions, by inflating ratings to boost fees from issuers, and being slow to downgrade souring mortgage debt.</p>
<p>The rating agency also faces related lawsuits by many U.S. states. Its main U.S. rivals, Moody's Investors Service and Fitch Ratings, do not face similar lawsuits.</p>
<p>If the SEC decides to charge S&amp;P, it will mark the first time the agency has ever sued a major credit-rating firm.</p>
<p>In an April interview with Reuters, SEC Enforcement Director Andrew Ceresney said his agency was pursuing new actions against rating agencies over shoddy disclosures and other violations of its rules.</p>
<p>&nbsp;</p>
<p>(Reporting by Jonathan Stempel in New York and Sarah N. Lynch in Washington, D.C. Editing by Andre Grenon)</p><p><a href="http://www.businessinsider.com/r-standard--poors-may-face-sec-charges-over-ratings-2014-23#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/r-standard--poors-downgrades-15-european-banks-cites-reforms-2014-29S&P Downgraded 15 European Bankshttp://www.businessinsider.com/r-standard--poors-downgrades-15-european-banks-cites-reforms-2014-29
Tue, 29 Apr 2014 17:43:21 -0400Richa Naidu
<p><img style="float:right;" src="http://static1.businessinsider.com/image/533d6d0d5afbd37c658b456c-450-300/sp-to-review-outlooks-on-eu-banks-ratings-by-end-april.jpg" border="0" alt="A view shows the Standard &amp; Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid" /></p><p>Ratings agency Standard &amp; Poors said it has downgraded 15 European banks, including Barclays, Credit Suisse, and Deutsche Bank after European lawmakers agreed on a framework that prevents governments from having to bail out troubled banks.</p>
<p>The European Parliament signed off this month on new laws to make it easier - and less costly for taxpayers - to wind down problem banks, after long wrangling over rules for an industry blamed for triggering the worst economic slump in a generation.</p>
<p>S&amp;P said extraordinary government support for these banks would likely diminish as regulators implement the reforms, downgrading them to 'negative' from 'stable.</p>
<p>The banks, many of which are systemically important, also included ABN AMRO, Bank Of Ireland and ING Bank.</p>
<p>"We observe similar powers coming into force in Liechtenstein and Norway, and already in place in Switzerland, which are not EU members," the ratings agency added.</p>
<p>S&amp;P also raised its ratings on Danske Bank &nbsp;and Argenta Spaarbank, while keeping 'negative' outlooks on 38 banks and 'stable' outlooks on 15 banks. It maintained its CreditWatch rating on five banks, with negative implications.</p>
<p>(Reporting by Richa Naidu in Bangalore; Editing by David Gregorio)</p><p><a href="http://www.businessinsider.com/r-standard--poors-downgrades-15-european-banks-cites-reforms-2014-29#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/us-shale-boom-allowed-iran-sanctions-2013-6IT'S WORKING: The Shale Boom Has Given America Tons Of Political Leverage In The Middle Easthttp://www.businessinsider.com/us-shale-boom-allowed-iran-sanctions-2013-6
Tue, 18 Jun 2013 09:18:21 -0400Rob Wile
<p><img style="float:right;" src="http://static4.businessinsider.com/image/500967386bb3f7bd4b00000c-480-/iran-flag.jpg" border="0" alt="iran flag" width="480" /></p><p>Many have <a href="http://www.businessinsider.com/the-shale-boom-economy-is-overrated-2013-5">been skeptical</a> of the true extent of the shale revolution's impact on the U.S. economy, beyond localized effects like lowering mid-continent crude prices and reducing costs for industrial petroleum product manufacturing.</p>
<p>But in a new note, Standard and Poor RatingsDirect's Peter Rigby says it's actually given the U.S. a tremendous amount of political leverage.</p>
<p>Specifically, it can impose sanctions on Iran without the ricochet effect of spiking crude oil prices.&nbsp;</p>
<p>The Boston Company has made a similar argument &mdash; that U.S. crude production may not be causing prices to go down, <a href="http://www.businessinsider.com/death-of-peak-oil-2013-3">but has dampened market volatility</a>.&nbsp;</p>
<p>In a follow-up email to Business Insider, Rigby elaborated on his point:&nbsp;</p>
<p style="padding-left: 30px;"><span>...as Iranian supply came off the global market, new US supply was coming on line to contribute to meeting global demand. </span></p>
<p style="padding-left: 30px;"><span><strong>So even though US supply, for all practical purposes, does not go onto the global market, it contributes to global supplies.</strong> The price is still global, which the US pays, adjusted, of course, for transportation and crude quality differentials. </span></p>
<p style="padding-left: 30px;"><span><strong>So, all else being equal, had the embargo gone into effect without that new 1 million barrels per day from the US, there would have been upwards price pressure on crude.</strong> </span></p>
<p style="padding-left: 30px;"><span>One million barrels is not an insignificant amount, as evidenced by the changing crude oil shipping patterns that are emerging. </span></p>
<p><span style="line-height: 1.5em;">Rigby cautioned that the Saudis still hold all the cards.</span></p>
<p>But it looks like the U.S. is finally getting some leverage.</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/death-of-peak-oil-2013-3" >Peak Oil Is Dead</a></strong></p>
<p><a href="http://www.businessinsider.com/us-shale-boom-allowed-iran-sanctions-2013-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/floyd-abrams-sp-defense-strategy-2013-2Why The Nation's Most Famous Free Speech Lawyer Won't Use The First Amendment To Defend S&Phttp://www.businessinsider.com/floyd-abrams-sp-defense-strategy-2013-2
Wed, 06 Feb 2013 16:18:00 -0500Erin Fuchs
<p><img style="float:right;" src="http://static6.businessinsider.com/image/5112bebcecad048b69000007-400/floyd-abrams.jpg" border="0" alt="Floyd Abrams" /></p><p>Credit rating agency Standard &amp; Poor's will have the "<a href="http://abovethelaw.com/2009/07/floyd-abrams-standard-poors-and-the-first-amendment-defense-of-rating-agencies/">god of First Amendment law</a>" in its corner as it fights <a href="http://www.businessinsider.com/goverment-complaint-against-sp-2013-2">the federal government's fraud lawsuit.</a></p>
<p>Floyd Abrams, <a href="http://www.businessinsider.com/floyd-abrams-citizens-united-letter-2012-11">who represented The New York Times</a> in the famous Pentagon Papers case, is defending S&amp;P against claims it knowingly gave residential mortgage-backed securities ratings that were way too high.</p>
<p>Back in 2009, The Times reported on how Abrams would defend S&amp;P in litigation brought by investors.</p>
<p>The Times said Abrams would contend that "S&amp;P's ratings deserve exactly the <a href="http://www.bloomberg.com/news/2013-02-05/s-p-won-t-employ-first-amendment-defense-in-u-s-ratings-lawsuit.html">sort of free-speech protections afforded to journalists,</a> on the theory that a bond rating is like an editorial &ndash; an opinion based on an educated guess about the future."</p>
<p>But Abrams <a href="http://www.bloomberg.com/news/2013-02-05/s-p-won-t-employ-first-amendment-defense-in-u-s-ratings-lawsuit.html">won't rely on the First Amendment defense</a> in the case brought by the government, Bloomberg reports.</p>
<p>"I don't have any magic First Amendment wand in my pocket for this one," Abrams told Bloomberg TV's Sara Eisen. "It's not a First Amendment case. The government is alleging that S&amp;P didn't believe what it said; the First Amendment doesn't protect against that."</p><p><strong>SEE ALSO:&nbsp;<a href="http://www.businessinsider.com/floyd-abrams-citizens-united-letter-2012-11" >Former New York Times Lawyer Rips Into The Paper's Editorial Board ></a></strong></p>
<p><a href="http://www.businessinsider.com/floyd-abrams-sp-defense-strategy-2013-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/report-doj-could-sue-standard-and-poors-2013-2REPORT: S&P Could Become First Ratings Agency To Get Sued For Their Actions Before The Financial Crisishttp://www.businessinsider.com/report-doj-could-sue-standard-and-poors-2013-2
Mon, 04 Feb 2013 13:45:33 -0500Julia La Roche
<p><img style="float:right;" src="http://static3.businessinsider.com/image/4e42f1dbecad043a49000000-400-300/s-and-p.jpg" border="0" alt="standard and poor" /></p><p>Standard &amp; Poor's could get sued by federal and state officials over rating mortgage bonds before the financial crisis, <a href="http://online.wsj.com/article/SB10001424127887324445904578284064003795142.html?mod=djemalertNEWS">according to the Wall Street Journal</a>.</p>
<p>The WSJ reports that the Justice Department and some state officials are planning to file civil charges against Standard &amp; Poor's as early as this week, according to unnamed sources familiar with the situation.&nbsp;</p>
<p>The allegations have to do with a model S&amp;P used to rate mortgage bonds, the report said.</p>
<p><a href="http://online.wsj.com/article/SB10001424127887324445904578284064003795142.html?mod=djemalertNEWS">Read the full report at the Wall Street Journal &gt;</a></p><p><a href="http://www.businessinsider.com/report-doj-could-sue-standard-and-poors-2013-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/sp-california-bond-rating-upgrade-2013-1S&P Gives California Governor Jerry Brown An 'A'http://www.businessinsider.com/sp-california-bond-rating-upgrade-2013-1
Thu, 31 Jan 2013 14:16:00 -0500Rob Wile
<p><img style="float:right;" src="http://static2.businessinsider.com/image/510ac20e69beddf71e00001f-400-/jerry-brown.png" border="0" alt="jerry brown" width="400" /></p><p>Standard and Poor's upgraded California's credit ratings to "A" from "A-" thanks to its improving fiscal and revenue outlook. &nbsp;</p>
<p><span>The agency cites Gov. Brown's budget accomplishments as a key reason for its upgrade:&nbsp;</span></p>
<p style="padding-left: 30px;"><span style="line-height: 1.5em;">The upgrades reflect our view of California's improved fiscal condition and cash position, and the state's projections of a structurally balanced budget through at least the next several years. As part of Governor Jerry Brown's recent budget proposal and multiple-year plan, the state would also largely retire its backlog of payment deferrals and internal loans. <strong>We view the alignment between revenues and expenditures as much improved and largely a result of policymakers' heightened emphasis on fixing the state's fiscal structure in the past two budgets</strong>.</span></p>
<p><span style="line-height: 1.5em;">We recently <a href="http://www.businessinsider.com/californias-economic-recovery-2013-1">explained</a> how Gov. Jerry Brown was able to balance the state's budget after years of deficit problems.&nbsp;</span></p>
<p>The agency listed several other factors that influenced its decision: &nbsp;</p>
<ul>
<li>"Deep and diverse economy, which is capable of above-average growth rates partly because of its prominent higher education institutions and businesses in innovative sectors, which help position California as a leading venture capital recipient state.</li>
<li>"Recent commitment to reaching alignment between ongoing revenues with recurring expenses while paying down budgetary debts.</li>
<li>"Likelihood for regular enactment of timely budgets following a constitutional change requiring only a legislative majority for budget approval.</li>
<li>"High but conservatively structured bonded debt."</li>
</ul>
<p><strong><span style="line-height: 22.5px;">SEE MORE: <a href="http://www.businessinsider.com/californias-economic-recovery-2013-1">How California Came Back From The Brink &gt;</a></span></strong></p><p><a href="http://www.businessinsider.com/sp-california-bond-rating-upgrade-2013-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/illinois-worst-rated-state-2013-1There's A New Worst-Rated State In The Nationhttp://www.businessinsider.com/illinois-worst-rated-state-2013-1
Sat, 26 Jan 2013 06:04:00 -0500Rob Wile
<p>S&amp;P has downgraded Illinois to A- with a negative outlook after the state's legislature failed to take meaningful action on reforming municipal pension woes, <a href="http://www.suntimes.com/17800327-761/illinois-bond-rating-sinks-to-worst-in-the-nation.html">the Chicago Sun-Times reports.</a></p>
<p>At A-, Illinois now has the distinction of having the lowest credit rating among all states, surpassing California.</p>
<p>Here's the ranking as of last July, <a href="http://www.pewstates.org/projects/stateline/headlines/infographic-sp-state-credit-ratings-20012012-85899404785">via Pew</a>:</p>
<p><img src="http://static3.businessinsider.com/image/5102f0346bb3f7db79000011-610-/state-credit-ratings-2001-2012%20(1).png" border="0" alt="state ratings" width="610" /></p>
<p><strong>SEE MORE: <a href="http://www.businessinsider.com/states-with-highest-negative-equity-2013-1">Twelve States Where Homeowners Remain Deep Underwater &gt;</a></strong></p><p><a href="http://www.businessinsider.com/illinois-worst-rated-state-2013-1#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/sp-20-to-25-chance-of-a-us-recession-2012-9S&P Sees A 20%-25% Chance Of A US Recessionhttp://www.businessinsider.com/sp-20-to-25-chance-of-a-us-recession-2012-9
Fri, 21 Sep 2012 14:13:00 -0400Sam Ro
<p><img style="float:right;" src="http://static6.businessinsider.com/image/4e42f1dbecad043a49000000-400-300/standard-and-poor.jpg" border="0" alt="standard and poor" /></p><p>In a new report, <a href="http://www.reuters.com/article/2012/09/21/idUSWNA591120120921">S&amp;P</a> estimates that U.S. GDP growth will decelerate in the second half.</p>
<p>"Overall, we expect GDP growth to be about 1.5% (quarter-over-quarter, annualized) in the second half of the year, softer than the 1.85% pace in the first half of the year," they write in a <a href="http://www.reuters.com/article/2012/09/21/idUSWNA591120120921">press release</a>.</p>
<p>They forecast 2012 GDP growth of 2.2% 2012 and 1.8% in 2013.</p>
<p>"Our expectation for the chances of another U.S. recession is about 20%-25%," said <a href="http://www.reuters.com/article/2012/09/21/idUSWNA591120120921">S&amp;P's Deputy Chief Economist Beth Ann Bovino</a>. "Chances of a quick turnaround are around 15%."</p>
<p>Here's S&amp;P's press release via <a href="http://www.reuters.com/article/2012/09/21/idUSWNA591120120921">Reuters</a>:<br />----------------------------------------</p>
<p><strong>S&amp;P: U.S. GDP growth likely to slow in second-half 2012</strong></p>
<p>Sept 21 - Recent jobs data were disappointing overall, showing softpotential for U.S. economic growth, said an article published today by Standard&amp; Poor's, titled "U.S. Economic Forecast: He's Buying A Stairway To Heaven." Weexpect U.S. GDP growth of just 2.2% this year and only 1.8% in 2013.<br /><br />"Our expectation for the chances of another U.S. recession is about 20%-25%," said Standard &amp; Poor's Deputy Chief Economist Beth Ann Bovino. "Chances of a quick turnaround are around 15%."<br /><br />The poor labor market continues to keep the recovery in slow gear, spurring Federal Reserve Chairman <a href="http://www.businessinsider.com/blackboard/ben-bernanke" class="hidden_link">Ben Bernanke</a> to take unprecedented action. After its September Federal Open Market Committee Meeting, the Fed extended its guidance on interest rates, saying that it will keep rates low until mid-2015. The Fed also initiated another round of quantitative easing, this time making the offer open-ended and tying it to labor market conditions.<br /><br />"A strong economic recovery is likely a long ways away. Businesses have pulled back on hiring, with a monthly average of just 97,000 job gains over the past six months. That's well below the 240,000-plus monthly job gains we saw in the winter," said Ms. Bovino. "This gives us reason not to expect a revival in household spending any time soon." Worries that taxes may jump next year if Congress doesn't reach a compromise on the fiscal cliff will also keep people cautious this year.<br /><br />For the more optimistic among us, there is some good news. "The housing market, which has been a drag on growth since 2005, may finally be helping--not hurting--the recovery," said Ms. Bovino. "We expect residential investment to contribute to GDP growth in 2012, for the first time in seven years." Even home prices, according to the S&amp;P/Case-Shiller Home Price Index, may have found their bottom. <br /><br />Overall, we expect GDP growth to be about 1.5% (quarter-over-quarter, annualized) in the second half of the year, softer than the 1.85% pace in the first half of the year. The global economic slowdown, plus poor visibility on how things will turn out politically both here and abroad, will likely keep this recovery at a crawl.</p><p><a href="http://www.businessinsider.com/sp-20-to-25-chance-of-a-us-recession-2012-9#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/the-credit-profile-of-every-us-state-infographic-2012-7The Credit Profile Of Every US State [Infographic]http://www.businessinsider.com/the-credit-profile-of-every-us-state-infographic-2012-7
Wed, 18 Jul 2012 09:52:00 -0400Simone Foxman
<p>&nbsp;The Pew Center for the States has created an infographic <a href="http://www.pewstates.org/projects/stateline/headlines/infographic-sp-state-credit-ratings-20012012-85899404785">showing the evolution of every state's Standard &amp; Poor's credit rating from 2001 to 2011.</a></p>
<p>Unsurprisingly, California comes in at the bottom of the pack, with a lousy credit rating of A-.</p>
<p>Your best bets? Utah, Virginia, North Carolina, and Missouri, all of which have been able to maintain credit ratings of AAA for '46 years.</p>
<p>&nbsp;</p>
<p><img src="http://static2.businessinsider.com/image/5006b7db6bb3f7446e00001e-900-/state-credit-ratings.png" border="0" alt="state credit ratings" width="900" /></p>
<p><em>h/t <a href="https://twitter.com/bdomenech" target="_blank">Ben Domenech</a></em></p><p><a href="http://www.businessinsider.com/the-credit-profile-of-every-us-state-infographic-2012-7#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/infographic-history-of-sp-500-index-from-1928-to-present-2012-7This Epic Infographic Shows How The S&P 500 Reacted To Key Moments In US History (SPY)http://www.businessinsider.com/infographic-history-of-sp-500-index-from-1928-to-present-2012-7
Mon, 16 Jul 2012 09:01:00 -0400Rob Wile
<p>Thanks to <a href="http://www.standardandpoors.com/home/en/us">Standard and Poor's</a> for giving us permission to feature this. (And apologies that this is so epic we're making you scroll right to see the whole thing.) &nbsp;</p>
<p><img src="http://static3.businessinsider.com/image/50007837eab8eae345000025-3000-/test-sp.jpg" border="0" alt="test sp " width="3000" /></p>
<p><em>This chart is created and owned by S&amp;P Capital IQ Financial Communications, a division of The McGraw-Hill Companies, Inc.</em></p><p><a href="http://www.businessinsider.com/infographic-history-of-sp-500-index-from-1928-to-present-2012-7#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/sp-affirms-us-ratings-outlook-remains-negative-2012-6S&P AFFIRMS U.S. RATINGS, OUTLOOK REMAINS NEGATIVEhttp://www.businessinsider.com/sp-affirms-us-ratings-outlook-remains-negative-2012-6
Fri, 08 Jun 2012 16:36:00 -0400Eric Platt
<p><img style="float:right;" src="http://static6.businessinsider.com/image/4fbfdfd269bedd3669000014-400-/ll-cool-j-american-flag-america-prosperity-sun-glasses.jpg" border="0" alt="LL Cool J American Flag America Prosperity Sun Glasses" width="400" /></p><p>Ratings agency Standard and Poor's has affirmed U.S. ratings at AA+ this afternoon, while saying the probability the country will head back into recession is one-in-five.</p>
<p><a href="http://www.businessinsider.com/sp-affirms-us-ratings-outlook-remains-negative-2012-6"><strong>Click here for updates &gt;</strong></a></p>
<p>The agency said it maintained its negative outlook because of the looming election in November and forced tax expirations and spending cuts that could arrive at the end of December.</p>
<p>A negative outlook indicates the likelihood the agency will lower its rating is at least one-in-three.</p>
<p>&nbsp;</p>
<p>Below, the <a href="http://www.standardandpoors.com/prot/ratings/articles/en/us/?articleType=HTML&amp;assetID=1245335000911">full statement</a>.</p>
<ul>
<li>In our view, the credit strengths of the U.S. include its resilient&nbsp;economy, its monetary credibility, and the U.S. dollar's status as the&nbsp;world's key reserve currency.</li>
<li>In our opinion, the U.S.'s credit weaknesses, compared with higher-rated sovereigns, include its fiscal performance, its debt burden, and what we&nbsp;perceive as a recent decline in the effectiveness, stability, and&nbsp;predictability of its policymaking and political institutions,&nbsp;particularly regarding the direction of fiscal policy.</li>
<li>We are affirming our unsolicited 'AA+/A-1+' sovereign credit ratings on&nbsp;the U.S.</li>
<li>The negative outlook reflects our opinion that U.S. sovereign credit&nbsp;risks, primarily political and fiscal, could build to the point of&nbsp;leading us to lower our 'AA+' long-term rating by 2014.</li>
</ul>
<p>TORONTO (Standard &amp; Poor's) June 8, 2012--Standard &amp; Poor's Ratings Services today said it affirmed its 'AA+' long-term and 'A-1+' short-term unsolicited sovereign credit ratings on the United States of America. The outlook on the long-term rating remains negative. The transfer and convertibility (T&amp;C) assessment of the U.S. is 'AAA'. Our T&amp;C assessment reflects the likelihood of official interference in the ability of U.S.-based public- and private-sector issuers to secure foreign exchange for debt service.</p>
<p>Our sovereign credit ratings on the U.S. primarily reflect our view of the strengths of the U.S. economy and monetary system, as well as the U.S. dollar's status as the world's key reserve currency. The ratings also take into account the high level of U.S. external debt net of liquid assets; our view of the recent decline--albeit from a high level--in the effectiveness, stability, and predictability of U.S. policymaking and political institutions; and the weakness of recent and expected U.S. fiscal performance.</p>
<p>The U.S. has a high-income economy, with GDP per capita of more than $48,000 in 2011. We expect real GDP per capita growth to average 0.7% from 2006 through our forecast for 2015. Furthermore, we see the U.S. economy as highly diversified and market-oriented, with an adaptable and resilient economic&nbsp;structure, all of which contribute to strong credit quality.</p>
<p>We believe the Federal Reserve System (the U.S. monetary authority) has an excellent ability and willingness to support sustainable economic growth and to attenuate major economic or financial shocks for three reasons. First, we believe the Fed has strong control over the U.S. money supply and domestic liquidity conditions given the free-floating U.S. exchange rate regime and the Fed's timely and effective actions to lessen the impact of major shocks since 2007. Second, we believe U.S. monetary policy has strong credibility. For example, the Fed has kept inflation (measured by CPI) at less than 4% in each of the past 15 years. In addition, the Fed's operational independence is well-established and commands a wide array of monetary policy instruments. Third, the U.S. monetary transmission mechanism benefits from the unparalleled depth and diversification of the country's financial system and capital markets, in our opinion.</p>
<p>U.S. narrow net external indebtedness (debt U.S. residents owe to foreigners net of liquid non-equity U.S. public- and financial-sector claims on foreigners) is high, at more than 300% of current account receipts (CAR) in 2011. Nevertheless, the U.S. has a substantially stronger overall net external liability position, at less than 150% of CAR (most notably incorporating external equity assets), net income in the balance of payments is positive and growing, and the U.S. dollar has long been the world's leading reserve currency.</p>
<p>We view U.S. governmental institutions (including the Administration and Congress) and policymaking as generally strong, although the ability to implement reforms has weakened in recent years because of a sometimes slow and complex decision-making process, particularly with regard to broad fiscal policy direction. In particular, we think that recent shifts in the ideologies of the two major political parties in the U.S. could raise uncertainties about the government's ability and willingness to sustain public finances consistently over the long term. We believe that political polarization has increased in recent years. For example, the National Commission on Fiscal Responsibility and Reform (chaired by <a class="hidden_link" href="http://www.businessinsider.com/blackboard/alan-simpson">Alan Simpson</a> and Erskine Bowles), created in 2010, failed to reach its goal for its own members' approval of the fiscal consolidation plan it produced. Moreover, its plan was never brought to a congressional vote.</p>
<p>Similarly, the Joint Select Committee on Deficit Reduction (Supercommittee), which the Budget Control Act of 2011 (BCA11) established, failed to reach an agreement by the fall deadline that BCA11 imposed. Although the Supercommittee's inability to reach an agreement was consistent with our base-case scenario when we lowered the long-term rating on the U.S. to 'AA+' in August 2011 (and thus did not prompt a subsequent rating action), it was a negative development. Moreover, in our view, last summer's debt ceiling debate raised some concern about Congressional commitment to avoiding default on U.S. government debt.</p>
<p>Although the 2012 elections could resolve the U.S. fiscal debate, we see this outcome as unlikely. If, as commentators currently expect, the election is close, the race could, in our view, reduce bipartisanship from its already low level as each side strives to rally support by more clearly distinguishing itself from the other.</p>
<p>One thing we do expect Republicans and Democrats to agree on--given an unemployment rate of about 8% and continued risks to the U.S. economic recovery--is avoiding sudden fiscal adjustment. We expect that a sudden fiscal adjustment could occur if all current tax and spending provisions, set to either expire or take effect near the end of 2012, go forward in accordance with current law.</p>
<p>Instead, our current (and previous) base-case fiscal scenario assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place indefinitely and that the alternative minimum tax is indexed for inflation after 2011. On the expenditure side, our base case assumes Medicare's payment rates for physicians' services stay at their current level, although we also assume that BCA11 remains in force. (This includes both the original caps on discretionary appropriations and the automatic spending reductions applicable in light of the Supercommittee's failure to reach an agreement.) Our base-case fiscal scenario also assumes annual real GDP growth of 2%-3.5% and consumer price inflation near 2% through 2016. Finally, this fiscal scenario presumes near-zero (nominal) short-term Treasury borrowing rates until 2015, at which point the rates climb by just more than 100 basis points, as well as a slower rise of about the same magnitude in long-term Treasury yields from their 2011 level of just less than 3%.</p>
<p>Under our base-case fiscal scenario, we expect the general government deficit, as a share of GDP, to decline slowly, from 10% in 2011 to 9% in 2012 and 5% by 2016. Even at 5%, the deficit would still be at the high end of the ranges we use to assess sovereigns' fiscal performance (see "Sovereign Government Rating Methodology And Assumptions," published June 30, 2011). Under the same base-case scenario, we expect net general government debt, as a share of GDP, to continue to rise, from 77% in 2011 to 83% in 2012 and 87% by 2016. These expectations are in between those of our base-case scenario of August 2011 (74% in 2011 and 79% in 2015) and those of our downside scenario of the same date (74% in 2011 and 90% in 2015), keeping the U.S. at the high end of our indebtedness range and highlighting the deterioration in our expectations since last summer.</p>
<p>Moreover, absent significant fiscal policy change, we expect U.S. net general government indebtedness, as a share of the economy, to continue to increase after 2016. Our expectation reflects the likely impact that demographic changes and health care inflation will have on spending in the long term (see "Mounting Medical Care Spending Could Be Harmful To The G-20's Credit Health," published Jan. 26, 2012).</p>
<p>As a result, we continue to believe that the U.S. will likely need a more substantial medium-term fiscal consolidation plan than BCA11's to arrest the deterioration in the government's net indebtedness, as a share of the economy. For such a plan to be credible, we believe it will require broad bipartisan support. We stress the qualifier "medium-term" because we believe the fiscal challenges of the U.S. are more structural and recognize that abrupt short-term measures could be self-defeating when domestic demand is weak.</p>
<p>Apart from these domestic factors, we believe U.S. economic and fiscal performance remains subject to a number of significant risks, including ongoing fiscal and financial market dislocations in the European Economic and Monetary Union (euro area). These could lower U.S. growth either through a decline in U.S. exports to the euro area or, more importantly, through second-round effects on the U.S. financial sector. Overall, we believe the risk of returning to recession in the U.S. is about 20% (see "U.S. Economic Forecast: Which Came First?," published May 15, 2012).</p>
<p>The outlook on our 'AA+' long-term rating is negative, reflecting our view that the likelihood that we could lower our long-term rating on the U.S. within two years is at least one-in-three.</p>
<p>Pressure on the rating could build if, in our view, elected officials remain unable to agree on a credible, medium-term fiscal consolidation plan that represents significant (even if gradual) fiscal tightening beyond that envisaged in BCA11. Pressure could also increase if real interest rates rise and result in a projected general government (net) interest expenditure of more than 5% of general government revenue.</p>
<p>On the other hand, the rating could stabilize at the current level with a medium-term fiscal consolidation plan, or if the U.S. government makes faster progress toward reducing the general government deficit than our base case currently presumes.</p><p><a href="http://www.businessinsider.com/sp-affirms-us-ratings-outlook-remains-negative-2012-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/sp-1-in-3-chance-of-greek-exit-2012-6S&P: 'There Is At Least A 1-In-3 Chance' Of Grexit In The Next Few Monthshttp://www.businessinsider.com/sp-1-in-3-chance-of-greek-exit-2012-6
Mon, 04 Jun 2012 14:18:00 -0400Simone Foxman
<p><img style="float:right;" src="http://static4.businessinsider.com/image/4faeaf7a69bedd4537000003-400-/golden-dawn-greece.jpg" border="0" alt="Golden Dawn Greece" width="400" /></p><p>In a<a href="http://www.reuters.com/article/2012/06/04/idUSL1E8H4D7Y20120604" target="_blank"> report released today</a>, Standard &amp; Poor's analysts join an increasing number of analysts making scary predictions about a Greek exit from the eurozone.</p>
<p>In fact, they set the odds of Grexit at one-in-three:</p>
<p style="padding-left: 30px;"><em><strong>We believe there is at least a one-in-three chance of Greece exiting the eurozone in the coming months, following national elections on June 17.</strong> This could be brought about by Greece rejecting the reforms demanded by the troika--the European Commission, International Monetary Fund (IMF), and <a class="hidden_link" href="http://www.businessinsider.com/blackboard/european-central-bank">European Central Bank</a> (ECB)--and a consequent suspension of external financial support.</em></p>
<p>Surprisingly, however, they argue that a Greek exit from the euro might not influence the ratings of other euro area sovereigns, because it will have to be properly contained:</p>
<p style="padding-left: 30px;"><em>European policymakers would be keen to demonstrate that Greece is a special case. We would expect growing financial support and leniency in the face of slipping targets for other sovereigns embroiled in the debt crisis. Accordingly, we currently do not consider that a Greek withdrawal would automatically have any permanently negative consequences for other peripheral sovereigns' prospects of continuing eurozone membership. For the same reasons, <strong>it is our base-case assumption that a Greek exit by itself would not automatically trigger further downward sovereign rating actions elsewhere.</strong></em></p>
<p>With EU leaders still resisting significant changes to the fabric of the European Union&mdash;and as their policy response has come consistently too little too late&mdash;can we suddenly believe in the strength of an EU policy response?</p>
<p>Once more, we can speculate little on the answers to these questions before the European Central Bank meeting on June 6 and Greek elections on June 17.</p>
<p><a href="http://www.reuters.com/article/2012/06/04/idUSL1E8H4D7Y20120604" target="_blank">Read the full release via Reuters &gt;</a></p><p><a href="http://www.businessinsider.com/sp-1-in-3-chance-of-greek-exit-2012-6#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/sp-slashes-ratings-of-5-spanish-banks-2012-5S&P SLASHES RATINGS OF 5 SPANISH BANKShttp://www.businessinsider.com/sp-slashes-ratings-of-5-spanish-banks-2012-5
Fri, 25 May 2012 12:52:00 -0400Simone Foxman
<p><img style="float:right;" src="http://static1.businessinsider.com/image/4caa3b367f8b9aeb07c80000-400-/monster-machine-krupp-digger.jpg" border="0" alt="monster machine, krupp digger" width="400" /></p><p>S&amp;P's ratings agency just cut the long-term issuer ratings of five Spanish banks and left nine unchanged.</p>
<p>Among the downgrades were Bankia and Banco Popular, which were both cut to junk.</p>
<p>The latter is a subsidiary of BFA, the financial company which is meeting today to ask for even more money from the Spanish government after receiving a first bailout earlier this month.</p>
<p><span>Banco Financiero y de Ahorros S.A., Banca Civica S.A., and <a href="http://www.businessinsider.com/blackboard/bankinter" class="hidden_link">Bankinter</a> also saw their ratings cut, though they remain investment-grade issuers.</span></p>
<p>The move follows S&amp;P's two-notch downgrade of Spain on April 26 and continuing concerns about the fragile health of the Spanish financial sector.</p>
<p>Here's the <a href="http://www.standardandpoors.com/prot/ratings/articles/en/us/?articleType=HTML&amp;assetID=1245334201708" target="_blank">full statement</a>:</p>
<p>---</p>
<p>MADRID (Standard &amp; Poor's) May 25, 2012--Standard &amp; Poor's Ratings Services today said it has lowered its ratings on five Spain-based financial institutions, affirmed the ratings on nine, and maintained the ratings on five on CreditWatch with negative implications (see Ratings List).</p>
<p>We have also revised down our assessments of the stand-alone credit profiles (SACPs) of six financial institutions, with revisions ranging from one to three notches.</p>
<p>With the exception of two financial institutions, all ratings either carry a negative outlook or remain on CreditWatch negative.</p>
<p>The rating actions follow our review of the wider implications for economic and industry risks in the Spanish banking sector after our two-notch downgrade of the Kingdom of Spain (BBB+/Negative/A-2) on April 26, 2012. As a result of the review, we have maintained our Banking Industry Country Risk Assessment (BICRA) on Spain at group '5', but revised our economic risk score, a component of the BICRA, to '6' from '5' (see "<a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=7343153&amp;rev_id=1">BICRA On Spain Maintained At Group 5, Economic Risk Score Revised To '6' Following Sovereign Downgrade</a>," published May 25, 2012, on RatingsDirect on the Global Credit Portal).</p>
<p>We lowered our long-term counterparty credit ratings on five financial institutions--Bankia S.A., Banco Financiero y de Ahorros S.A., Banca Civica S.A. (Civica), <a href="http://www.businessinsider.com/blackboard/banco-popular-espanol" class="hidden_link">Banco Popular Espanol</a> S.A. (Popular), and Bankinter S.A.--based on our lowering of our assessments of their SACPs. We revised the SACPs following our review of the Spanish banking industry's economic risk, owing to the impact we see on the capital positions of the first four institutions and on the business model of the fifth one. Under our criteria, we use the economic risk score to calibrate the risk weights used for our capital calculations in several asset classes (see "<a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6921376&amp;rev_id=3">Banks: Rating Methodology And Assumptions</a>" for definition). As a result of our calculations, the capital positions of the institutions are immediately affected by a revision of the economic risk score.</p>
<p>We are now for the first time incorporating into the long-term ratings on two financial institutions--Popular, and Bankia, and indirectly its parent BFA--one and two notches respectively of uplift above their SACPs to reflect potential short-term extraordinary support from the Spanish government. We believe that the Spanish government would likely provide short-term support to back any potential capital shortfall at these two institutions if necessary. In addition, our long-term ratings on these two institutions and on <a href="http://www.businessinsider.com/blackboard/banco-de-sabadell" class="hidden_link">Banco de Sabadell</a> S.A. (Sabadell) and C&iacute;vica benefit from one notch of uplift over their SACPs for potential extraordinary government support.</p>
<p>The outlooks on the long-term ratings on six financial institutions--Banco Santander S.A. (and its subsidiaries), Banco Bilbao Vizcaya Argentaria S.A. (<a href="http://www.businessinsider.com/blackboard/bbva" class="hidden_link">BBVA</a>), Popular, Sabadell, Kutxabank S.A., and Bankinter--are negative. They generally reflect the possibility that we could lower the ratings if we perceived increasing pressure on the banks' financial strength in the context of Spain's weakening economic conditions. For Santander (and its subsidiaries) and BBVA, the negative outlooks also reflect the negative outlook on Spain. One financial institution, Confederacion Espanola de Cajas de Ahorros, carries a stable outlook, which factors in our view that we are currently unlikely to change our ratings or stand-alone credit profile on CECA in the next few years, under our base-case scenario.</p>
<p>The ratings on five financial institutions--CaixaBank S.A. and its parent Caja de Ahorros y Pensiones de Barcelona (la caixa), <a href="http://www.businessinsider.com/blackboard/ibercaja" class="hidden_link">Ibercaja</a> Banco S.A., and Bankia and parent BFA remain on CreditWatch negative. The CreditWatch placements of the ratings on the first three reflect our view that pending acquisitions and their integration could have a negative impact on each entity's creditworthiness. In the case of Bankia and its parent BFA, the CreditWatch listing reflects uncertainties surrounding Bankia's restructuring and recapitalization plan, as well as the implementation risks it may entail.</p>
<p>Conversely, we kept the ratings on C&iacute;vica on CreditWatch positive based on our view that its creditworthiness may potentially benefit from its integration into Caixabank, a financially stronger group.</p>
<p>At the same time, we have also taken negative actions on various hybrid capital instruments issued by several financial institutions. These actions reflect our view of the increased vulnerability to nonpayment of dividends or coupons of the hybrid capital instruments that we see in each particular bank. Currently, we only rate preference shares issued or guaranteed by Santander and its core subsidiary <a href="http://www.businessinsider.com/blackboard/banco-espanol-de-credito" class="hidden_link">Banco Espanol de Credito</a> S.A. in investment-grade categories. We rate all the other hybrid instruments issued by other Spanish financial institutions in the noninvestment-grade categories. However, we think vulnerability to nonpayment of the dividends or coupons varies between the institutions, which is reflected in the wide range of our ratings, from our 'BB+' issue rating on BBVA and Caixabank's hybrid debt to our 'CCC-' issue rating on BFA's hybrid debt.</p>
<p>We will publish individual research updates on the banks identified below, including a list of ratings on affiliated entities, as well as the ratings by debt type--senior, subordinated, junior subordinated, and preferred stock. RELATED CRITERIA AND RESEARCH</p>
<ul>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6921376&amp;rev_id=3">Banks: Rating Methodology And Assumptions</a>, Nov. 9, 2011</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6782163&amp;rev_id=3">Banking Industry Country Risk Assessment Methodology And Assumptions</a>, Nov. 9, 2011</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6909411&amp;rev_id=3">Group Rating Methodology And Assumptions</a>, Nov. 9, 2011</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6919278&amp;rev_id=1">Bank Hybrid Capital Methodology And Assumptions</a>, Nov. 1, 2011</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=6587605&amp;rev_id=8">Nonsovereign Ratings that Exceed EMU Sovereign Ratings: Methodology and Assumptions</a>, June 14, 2011</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=5294188&amp;rev_id=3">Analytical Approach to Assessing Nonoperating Holding Companies</a>, March 17, 2009</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=7343153&amp;rev_id=1">BICRA On Spain Maintained At Group 5, Economic Risk Score Revised To '6' Following Sovereign Downgrade</a>," published May 25, 2012</p>
</li>
<li>
<p><a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=7289842&amp;rev_id=2">Ratings On Spain Lowered To 'BBB+/A-2' On Debt Concerns; Outlook Negative</a>, April 26, 2012</p>
</li>
</ul>
<p>RATINGS LIST The ratings below are counterparty credit ratings. Downgraded; CreditWatch Action To From Banco Popular Espanol S.A. BB+/Negative/B BBB-/Watch Neg/A-3 Bankinter S.A. BB+/Negative/B BBB-/Watch Neg/A-3 Downgraded; Remain On CreditWatch To From Banca Civica S.A. Long-Term Counterparty Credit Rating BB/Watch Pos BB+/Watch Pos Bankia S.A. BB+/Watch Neg/B BBB-/Watch Neg/A-3 Banco Financiero y de Ahorros S.A. Long-Term Counterparty Credit Rating B+/Watch Neg BB-/Watch Neg Affirmed; CreditWatch/Outlook Action To From Banco Financiero y de Ahorros S.A. Short-Term Counterparty Credit Rating B B/Watch Neg Banco de Sabadell S.A. BB+/Negative/B BB+/Watch Neg/B CaixaBank S.A. Short-Term Counterparty Credit Rating A-2 A-2/Watch Neg Confederacion Espanola de Cajas de Ahorros BBB-/Stable/A-3 BBB-/Watch Neg/A-3 Kutxabank S.A. BBB-/Negative/A-3 BBB-/Watch Neg/A-3 Affirmed To From <a href="http://www.businessinsider.com/blackboard/banco-santander" class="hidden_link">Banco Santander</a> S.A. A-/Negative/A-2 A-/Negative/A-2 Banco Espanol de Credito S.A. A-/Negative/A-2 A-/Negative/A-2 Santander Consumer Finance, S.A. BBB+/Negative/A-2 BBB+/Negative/A-2 Banco Bilbao Vizcaya Argentaria S.A. BBB+/Negative/A-2 BBB+/Negative/A-2 Remain On CreditWatch To From Banca Civica S.A. Short-Term Counterparty Credit Rating B/Watch Pos B/Watch Pos CaixaBank S.A. Long-Term Counterparty Credit Rating BBB+/Watch Neg BBB+/Watch Neg Caja de Ahorros y Pensiones de Barcelona BBB-/Watch Neg/A-3 BBB-/Watch Neg/A-3 Ibercaja Banco S.A. BBB-/Watch Neg/A-3 BBB-/Watch Neg/A-3 NB. This list does not include all ratings affected.</p>
<div class="boilerplate">
<p>Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard &amp; Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard &amp; Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.</p>
</div><p><a href="http://www.businessinsider.com/sp-slashes-ratings-of-5-spanish-banks-2012-5#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/sp-downgrades-greece-to-selective-default-2012-2S&P DOWNGRADES GREECE TO 'SELECTIVE DEFAULT'http://www.businessinsider.com/sp-downgrades-greece-to-selective-default-2012-2
Mon, 27 Feb 2012 16:34:00 -0500Joe Weisenthal and Simone Foxman
<p><img style="float:right;" src="http://static1.businessinsider.com/image/4f391b20eab8ea2c6900001d-338-253/greece-protests-riots-2-2012.jpg" border="0" alt="greece protests riots 2-2012" width="338" height="253" /></p><p></p>
<p>Greece is now in selective default according to S&amp;P, which just amended its rating from CC (junk) to SD (selective default).</p>
<p>This comes after Greece instituted retroactive collective action clauses to force bondholders to participate in an upcoming debt restructuring and submitted a formal offer for its creditors to participate in a bond swap last week.</p>
<p>The "selective default" designation differentiates what's happening right now from disorderly default (or "D" rating), since the current debt restructuring is being managed and guaranteed by other EU countries.</p>
<p>The move is primarily a technical one; private Greek bondholders are being asked to voluntarily trade in their holdings of Greek bonds for ones with longer maturities, but are now being forced to do so through a collective action clause (CAC) that could make this restructuring obligatory.</p>
<p>Once the debt swap ends on March 12, S&amp;P says, Greece's rating will likely be raised again back to CCC&mdash;S&amp;P's "forward-looking assessment of Greece's creditworthiness."</p>
<p>Here's the <a href="http://www.standardandpoors.com/prot/ratings/articles/en/us/?articleType=HTML&amp;assetID=1245329471786" target="_blank">full release</a>:</p>
<p>---</p>
<p>LONDON (Standard &amp; Poor's) Feb. 27, 2012--Standard &amp; Poor's Ratings Services said today that it has lowered its 'CC' long-term and 'C' short-term sovereign credit ratings on the Hellenic Republic (Greece) to 'SD' (selective default).</p>
<p>Our recovery rating of '4' on Greece's foreign-currency issue ratings is unchanged. Our country transfer and convertibility (T&amp;C) assessment for Greece, as for all other eurozone members, remains 'AAA'.</p>
<p>We lowered our sovereign credit ratings on Greece to 'SD' following the Greek government's retroactive insertion of collective action clauses (CACs) in the documentation of certain series of its sovereign debt on Feb. 23, 2012. The effect of a CAC is to bind all bondholders of a particular series to amended bond payment terms in the event that a predefined quorum of creditors has agreed to do so. In our opinion, Greece's retroactive insertion of CACs materially changes the original terms of the affected debt and constitutes the launch of what we consider to be a distressed debt restructuring. Under our criteria, either condition is grounds for us to lower our sovereign credit rating on Greece to 'SD' and our ratings on the affected debt issues to 'D'.</p>
<p>As we have previously stated, we may view an issuer's unilateral change of the original terms and conditions of an obligation as a de facto restructuring and thus a default by Standard &amp; Poor's published definition (see <a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=7139399&amp;rev_id=1">"Retroactive Application Of Collective Action Clauses Would Constitute A Selective Default By Greece,"</a> Feb. 10, 2012, and <a href="http://www.standardandpoors.com/fgr_article/en/us?object_id=5402557&amp;rev_id=3">"Rating Implications Of Exchange Offers And Similar Restructurings, Update,"</a> May 12, 2009). Under our criteria, the definition of restructuring includes exchange offers featuring the issuance of new debt with less-favorable terms than those of the original issue without what we view to be adequate offsetting compensation. Such less-favorable terms could include a reduced principal amount, extended maturities, a lower coupon, a different payment currency, different legal characteristics that affect debt service, or effective subordination.</p>
<p>We do not generally view CACs (to the extent that they are included in an original issuance) as changing a government's incentive to pay its obligations in full and on time. However, we believe that the retroactive insertion of CACs will diminish bondholders' bargaining power in an upcoming debt exchange. <a class="hidden_link" href="http://www.businessinsider.com/blackboard/indeed">Indeed</a>, Greece launched such an exchange offer on Feb. 24, 2012.</p>
<p>If the exchange is consummated (which we understand is scheduled to occur on or about March 12, 2012), we will likely consider the selective default to be cured and raise the sovereign credit rating on Greece to the 'CCC' category, reflecting our forward-looking assessment of Greece's creditworthiness. In this context, any potential upgrade to the 'CCC' category rating would inter alia reflect our view of Greece's uncertain economic growth prospects and still large government debt, even after the debt restructuring is concluded.</p>
<p>If a sufficient number of bondholders do not accept the exchange offer, we believe that Greece would face an imminent outright payment default. This is because of its lack of access to market funding and the likely unavailability of additional official financing. The revised financial assistance program provided by most of the eurozone governments and the Stand-By Credit Arrangement with the International Monetary Fund are predicated on a successful exchange offer.</p>
<p>Our T&amp;C assessment for Greece, as for all other eurozone members, is 'AAA'. A T&amp;C assessment reflects our view of the likelihood of a sovereign restricting nonsovereign access to foreign exchange needed to satisfy the nonsovereign's debt-service obligations. Our T&amp;C assessment for Greece expresses our view of the low likelihood of the <a class="hidden_link" href="http://www.businessinsider.com/blackboard/european-central-bank">European Central Bank</a> restricting nonsovereign access to foreign currency needed for debt servicing.</p>
<p>If Greece were to withdraw from eurozone membership (which is not our base-case assumption) and introduce a new local currency, we would reevaluate our T&amp;C assessment on Greece to reflect our view of the likelihood of the Greek sovereign and its central bank restricting nonsovereign access to foreign exchange needed for debt service. Contrary to the current case, in this scenario, the euro would be a foreign currency, and the Bank of Greece would no longer be part of the European System of Central Banks. As a result, under our criteria, the T&amp;C assessment can be at most three notches above the foreign-currency sovereign credit rating.</p><p><a href="http://www.businessinsider.com/sp-downgrades-greece-to-selective-default-2012-2#comments">Join the conversation about this story &#187;</a></p> http://www.businessinsider.com/citi-heres-our-credit-ratings-outlook-for-every-advanced-economy-in-the-world-2012-2PRESENTING: Citi's Credit Rating Outlook For Every Major Economy In The Worldhttp://www.businessinsider.com/citi-heres-our-credit-ratings-outlook-for-every-advanced-economy-in-the-world-2012-2
Sat, 25 Feb 2012 07:05:00 -0500Simone Foxman
<p><img style="float:right;" src="http://static6.businessinsider.com/image/4e5e68c06bb3f75f6200000e/earth-from-space.jpg" border="0" alt="Earth from space" /></p><p>In its monthly Global Economic Outlook and Strategy guide, Citigroup analysts outline their expectations for countries' economic growth and credit ratings through 2013.</p>
<p>It's not a pretty sight--the majority of advanced economies are expected to see a downgrade from ratings agencies <a href="http://www.businessinsider.com/blackboard/moodys" class="hidden_link">Moody's</a> or Standard &amp; Poor's in the next two to three years.</p>
<p>What's most interesting about Citigroup's global outlook, however, is the timetable on these ratings cuts. While many countries are expected to get downgraded at some point, analysts' expectations for timing are (for the most part) broad--two to three years apart--suggesting that they could come as a surprise.</p><h3>US</h3>
<img src="http://static6.businessinsider.com/image/4ee0f4af69bedd7742000034-400-300/us.jpg" alt="" />
<p><p><strong>S&amp;P Ratings</strong></p>
<p>Current: AA+, negative</p>
<p>Near term (Up to six months): AA+, negative</p>
<p>Long term (Next 2-3 years): AA</p>
<p><strong>Moody's Ratings</strong></p>
<p>Current: Aaa, negative</p>
<p>Near term (Up to six months): Aaa, negative</p>
<p>Long term (Next 2-3 years): Aa1</p>
<p><strong>Citi's General Perspective: </strong><em>"Economic growth is continuing at a modest pace sustained by increasing employment, supportive policies and a mild winter. The Fed&rsquo;s latest effort to lower interest rates along with relative calm in global markets has buoyed investor confidence but conditions do not point to a major acceleration in growth. Rising demand for autos and business equipment indicates that key cyclical forces are pushing activity forward, and these are gradually overtaking diminishing drag from housing and state and local spending. Nonetheless, the threat of ill-timed major fiscal restraint looms over the two-year horizon."</em></p></p>
<br/><br/><h3>Canada</h3>
<img src="http://static3.businessinsider.com/image/4f392da469bedd277100007a-400-300/canada.jpg" alt="" />
<p><p><strong>S&amp;P Ratings</strong></p>
<p>Current: AAA, stable</p>
<p>Near term (Up to six months): AAA</p>
<p>Long term (Next 2-3 years): AAA</p>
<p><strong>Moody's Ratings</strong></p>
<p>Current: Aaa, stable</p>
<p>Near term (Up to six months): Aaa</p>
<p>Long term (Next 2-3 years): Aaa</p>
<p><strong>Citi's General Perspective:&nbsp;</strong><em>"The Canadian expansion persists despite immense external pressures and lingering uncertainties globally. Stronger-than-expected Canadian and US economic activity, as well as heartening inroads towards containment of the EA crisis, have brightened Canada&rsquo;s near-term outlook. Nonetheless, we maintain our anticipation of lackluster growth over the medium term amid moderating foreign and domestic demand."</em></p></p>
<br/><br/><h3>Japan</h3>
<img src="http://static5.businessinsider.com/image/4f3037dbecad04fb5400000b-400-300/japan.jpg" alt="" />
<p><p><strong>S&amp;P Ratings</strong></p>
<p>Current: AA-, negative</p>
<p>Near term (Up to six months): AA-, negative</p>
<p>Long term (Next 2-3 years): A+</p>
<p><strong>Moody's Ratings</strong></p>
<p>Current: Aa3, stable</p>
<p>Near term (Up to six months): Aa3</p>
<p>Long term (Next 2-3 years): A1</p>
<p><strong>Citi's General Perspective:&nbsp;</strong><em>"Recent survey data showed tentative signs of stabilization in activity in some of the major trading partners, while the yen depreciated against USD moderately in the wake of the BoJ&rsquo;s new easing action. While we expect only slight growth in the first half of 2012 amid export weakness, activity likely will accelerate to an annual rate of 2% or higher in the second half thanks to moderately faster global growth and reconstruction demand from the earthquake. However, deflation will probably persist well into 2013."</em></p></p>
<br/><br/><a href="http://www.businessinsider.com/citi-heres-our-credit-ratings-outlook-for-every-advanced-economy-in-the-world-2012-2#germany-4">See the rest of the story at Business Insider</a> http://www.businessinsider.com/ny-fed-heres-what-could-happen-after-dodd-frank-defangs-the-credit-ratings-agencies-2012-2NY Fed: Here's What Could Happen After Dodd-Frank Defangs The Credit Ratings Agencies http://www.businessinsider.com/ny-fed-heres-what-could-happen-after-dodd-frank-defangs-the-credit-ratings-agencies-2012-2
Wed, 15 Feb 2012 11:33:59 -0500Rob Wile
<p><img style="float:right;" src="http://static6.businessinsider.com/image/4ee61763ecad042526000004/capitol-hill.jpg" border="0" alt="Capitol Hill" /></p><p>The Big 3 credit ratings agencies have been taking heat from all sides since the financial crisis.</p>
<p>Now James Vickery, senior economist at the <a href="http://libertystreeteconomics.newyorkfed.org/2012/02/the-dodd-frank-acts-potential-effects-on-the-credit-rating-industry.html">New York Fed, has written about how the Dodd-Frank Act could transform their models</a>.</p>
<p>Here's his summary of the changes included in the legislation:</p>
<ul>
<li>New authority for the <a class="hidden_link" href="http://www.businessinsider.com/blackboard/sec">SEC</a> to suspend or revoke a rating agency&rsquo;s registration if warranted, or to penalize individual agency employees for misconduct</li>
<li>Public disclosure of the assumptions and data used to arrive at each rating, and submission of an annual report on internal controls by each agency</li>
<li>Rules to strengthen corporate governance and board independence</li>
<li>Implementing &ldquo;<a href="http://www.sec.gov/news/press/2011/2011-113.htm" target="_blank">look-backs</a>,&rdquo; or automatic reviews of when former agency employees join firms whose ratings they may have influenced</li>
<li>The creation of an Office of Credit Ratings within the SEC to administer regulations and conduct <a href="http://www.sec.gov/news/press/2011/2011-199.htm" target="_blank">annual examinations</a></li>
</ul>
<p>The government also plans to abandon any reference to an instrument's or institution's rating when evaluating them. Regulators will instead have to find an alternative "appropriate standard of creditworthiness."</p>
<p>What might they use instead?</p>
<p>Vickery says more vanilla granular measures of risk, quantitative regulatory models or firms' internal models might be suitable.</p>
<p>As an example, to comply with new Basel III requirements without relying on ratings, regulators have&nbsp; proposed a formula that depends on the seniority of the bond and the capital requirement that would apply to the assets underlying the securitization.</p>
<p>Dodd-Frank also stipulates an alternative to the "issuer-pays" model, responsible for the toxic conflict of interest in the runup to the crash, be found. The early money is on a "platform-pays" model, where an industry utility or self-regulatory board would be charged with collecting fees.</p>
<p>Of course, the legislation has been catching as much flak as the agencies themselves, so much could still change.</p><p><a href="http://www.businessinsider.com/ny-fed-heres-what-could-happen-after-dodd-frank-defangs-the-credit-ratings-agencies-2012-2#comments">Join the conversation about this story &#187;</a></p>